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    ISDA Summarizes Results of Consultation on Benchmark Fallbacks

    August 09, 2019

    ISDA published a statement summarizing the preliminary results of a consultation on pre-cessation issues for LIBOR and certain other interbank offered rates (IBORs). The consultation on pre-cessation issues, which was launched in May, sought comments on how derivatives contracts should address a regulatory announcement that LIBOR or certain other IBORs categorized as critical benchmarks under the EU Benchmarks Regulation are no longer representative of an underlying market. Additionally, ISDA announced that Bloomberg Index Services Limited (BISL) has been selected to calculate and publish adjustments related to fallbacks that ISDA intends to implement for certain interest rate benchmarks in its 2006 ISDA Definitions.

    ISDA received responses from 89 entities to the consultation from a variety of market participants including banks and broker-dealers, insurance companies, asset managers, government or federal entities, and central counterparties (CCPs). Respondents expressed a wide variety of views on whether and how to implement a pre-cessation trigger related to “non-representativeness” for derivatives. Respondents also expressed a number of issues for consideration related to the potential pre-cessation trigger and how to implement such a trigger.

    In September 2019, ISDA hopes to publish an aggregated summary of the feedback received. ISDA also hopes to consult on a proposed documentation solution for derivatives to allow for efficient incorporation of a pre-cessation fallback trigger in a manner that attempts to account for, and mitigate against, the concerns expressed by respondents to the recent consultation (to the extent such concerns can be addressed by documentation for derivatives). The consultation period for the proposed solution of ISDA will allow market participants to indicate whether the proposal addresses their concerns and to raise any additional concerns they may have. Meanwhile, ISDA will continue to work with market participants and regulators to determine how best to address concerns regarding “non-representative” benchmarks and implementation of pre-cessation fallbacks for derivatives. ISDA will continue to seek advice from its independent advisors and feedback from government and regulatory agencies.

     

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    Keywords: International, Banking, Securities, IBOR, Interest Rate Benchmarks, Risk-Free Rates, LIBOR, BISL, ISDA

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